3 ways to get rich off global warming

Commentary: Smart bets on water, electric vehicles and nuclear energy

Say what you want about the specifics of climate science, but it’s increasingly clear that scientific consensus points to global warming over the last century or so, and an outlook for continued climate change going forward.

According the United Nations Convention on Climate Change, the average temperature of the earth’s surface has increased about 0.74 degrees Celsius or 1.33 degrees Fahrenheit since the industrial revolution in the late 1800s. The U.N. group’s research also shows that sea levels have risen by 10 to 20 centimeters or about 4 to 8 inches over the 20th century.

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There will continue to be a debate about the politics of global warming or the balance between technology and the environment. But one thing that is increasingly clear is that it will have a dramatic impact on the global economy going forward.

So if you’re a long-term investor looking to position your portfolio for the next several decades, global warming has to be one of the factors you take into account.

Here are three investment ideas to protect your portfolio from this climate megashift, and perhaps make some decent profits in the process.

Water

Last year, analysts at Merrill Lynch released a report that identified big opportunities amid the increased risk of drought both at home and abroad. And even in the absence of a shortage, the report notes that water demand in the U.S. will grow by about 40% by 2030.

That sets up a big opportunity in water investments.

A broad way to play this trend is the PowerShares Water Resources ETF
PHO, -0.40%
. This fund is obviously a niche investment, but the fact that it has about $1 billion in assets proves that it isn’t just a quirky sideshow in the ETF space. This fund is designed to invest 90% of its cash in stocks that “create products designed to conserve and purify water for homes, businesses and industries.”

If you want to pick individual stock, top holdings in the PHO fund are a good place to start, including pump and flow control systems leader Flowserve
FLS, -1.65%
. The stock is up 20% year-to-date in 2013, and is up 250% from the March 2009 lows.

Also worth exploring are water utilities like American Water Works Co.
AWK, -0.18%
, which offers up a nice 2.8% dividend in addition to water exposure. The performance isn’t as impressive, but as a utility stock there is less volatility and more income potential.

Electric vehicles

Tesla Motors
TSLA, -0.94%
is incredibly frothy right now, no doubt about it. But once the dust settles after this momentum darling inevitably ends its do-no-wrong win streak, investors who write it off will do so at their peril.

The Model S from Tesla is far more than a fad. It has achieved the highest-ever rating for an automobile by Consumer Reports, and a five-star safety rating from the National Highway Traffic Safety Administration. This is a high quality vehicle that’s worth every penny to high-end consumers.

The innovation continues, not just at Tesla but also at Ford
F, -0.12%
and GM
GM, -0.48%
as mainstream automakers move increasingly towards low-emission and zero-emission vehicles. For instance, the University of Michigan just opened up a new $8 million battery research lab thanks in part to a huge subsidy from Ford in an effort to tap into batteries that give longer ranges to vehicles and need less time to charge.

If you are reluctant to jump right into the EV game, then consider a supplier like Johnson Controls
JCI, +1.22%
, which makes batteries for Daimler
DDAIF, -1.62%
and Ford among others or even the Global X Lithium ETF
LIT, -0.57%
that is comprised of lithium miners and suppliers.

Nuclear energy

In the wake of the Fukushima disaster, nuclear power is hardly in high demand. But the reality is that civilization is moving away from fossil fuels already and global warming will only increase this shift.

Leaders in nuclear technology include reactor manufacturing and engineering leaders General Electric
GE, -1.23%
and Babcock & Wilcox
BWC, +0.91%
. Both stocks were battered big time in 2011 after the Fukushima disaster, but both have also bounced back in 2012 and 2013 to reclaim those losses.

A riskier nuclear play that has not fared so well in the aftermath of Japan’s tsunami is Cameco
CCJ, -0.71%
, one of the world’s largest uranium providers. The good news is that in a highly regulated and complicated business, the risk of outside competition is very low… but the bad news is that until the outlook for nuclear energy brightens, a focused nuclear power play like CCJ has a low ceiling. Still, Cameco is operating in the black so it’s not at risk of evaporating even if it lacks the diversification of a broader industrial play like GE or BWC.

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